72 industry roundtable does the payments business need new ... · lázaro campos, swift: the...

To what extent is the distinction

between large and low value

payments eroding? Are people

willing to pay for immediate

finality where they don’t need it?

Gerard Hartsink, ABN AMRO & EPC: There is

no specific cut-off threshold for the difference

between high value and low value payments.

For customers (consumers, corporates and

governments) and for banks, the amount is

not the only relevant factor. Customer service,

counterparty risk, finality, value date and

costs are also relevant elements. Customers

(consumers and corporates) are prepared to

pay a premium for high value payments with

immediate finality.

Julie Monaco, JPMC: The distinction between

high value and low value payments is erod-

ing; some might describe it as blurring. Client

requirements are driven by the underlying

payment terms; for example - the need for

immediate or next day finality, information

requirements and cost.

The banking industry has developed payment

delivery infrastructures that facilitate this

process in a near seamless manner. As a

result, we are seeing payment channels

being used for purposes they were not built

for. The ACH channel, which was originally

designed for low value, recurring next day

transactions, is being used more often for

high value, one-time transactions. This places

an additional challenge on the industry to

maintain adequate credit and risk controls in

that environment.

Clients are willing to pay for the value-added

services that they need, including immediate

finality. The financial services industry will

Does the paymentsbusiness need newarchitecture?

Participants:(from left)

• Lázaro Campos, head of banking industry

division, SWIFT

• Gerard Hartsink, senior executive vice presi-

dent, market infrastructures,

ABN AMRO & chairman,

European Payments Council

(EPC)

• Julie Monaco, senior vice president & core

cash management business

executive JPMorgan Chase

(JPMC)

• Hansjörg Nymphius, head of methodologies &

performance management,

Deutsche Bank Global Cash

Management & chairman

Euro Banking Association

(EBA)

• Terry Quigley, head of global financial

messaging, LogicaCMG

• Marilyn H. Spearing,head of global payments and

cash management, HSBC

72 Industry roundtable

Dialogue – Q3 2004

Q3 2004 – Dialogue

The global payments landscape faces significant pressure as a result of market forces, changing customer

needs, imposed regulatory requirements and technological advances. Financial institutions are grappling

with how to rise to these challenges without devaluing existing investments and practices. To what extent

is the distinction between large and low value payments eroding? Is legacy an impediment to change?

What should the role of central banks be in the provision of payments services? And what role should

corporate customers have in shaping these services?

For its third virtual roundtable of 2004, Dialogue brought together banks, technologists and infrastructure

providers to assess the impact of these pressures on the future shape of the industry.

73Industry roundtable

want to direct clients to the payment

channel that both meets their needs and

offers the appropriate risk and credit pro-

tections to the service providers and their

clients.

Marilyn Spearing, HSBC: I do think there is

a gradual erosion between the two.

Supporting that would be the elimination

of upper limits in a lot of ACHs, creation of

technology on file format in order to flow

the transactions more easily and the ACHs

universally adopting RTGS-like settlement

approaches.

Against that – and this why the erosion will

be slow – is the question of the price dif-

ferential. Then you start getting into what

type of credit support is required for the

settlement to occur efficiently and that is

what’s driving the price differential.

We don’t actually find finality a big issue

with our corporates. Most of our customers

talk to us now about their scheduled pay-

ments versus their urgent payments. Given

that the world has organised itself around

the scheduled payments, these can be very

simply separated. The mindset of many of

our clients therefore works against the ero-

sion because it keeps payments going

down separate channels.

The final factor working against erosion is

everyone’s current investments in their exist-

ing infrastructure – not just the banks, but

the people that are asking us to clear for

them; both our corporates and the other

bank clients. They’ve already segregated

their transactions; that’s how they’re process-

ing. So to change, you’d have to invest fur-

ther in what is a very low-margin business.

Is legacy therefore an impedi-

ment to change?

Terry Quigley, LogicaCMG: If one started

with a clean sheet of paper – and some

developing countries do have such an

opportunity – then the engineering of an

infrastructure capable of handling all pay-

ment types, irrespective of source, value

and clearing cycle is feasible. The issue is

not one of technology – technology exists

now to transmit payment instructions and

clear and settle those instructions without

regard to value or type of payment instru-

ment. The issue, as has already been sug-

gested, is one of a trade off between

urgency and cost.

Typically there are not that many choices

available in a country. It is often a choice

between a service that is cheap/free at

point of use (e.g. bulk payment system)

but takes days or a higher cost RTGS sys-

tem offering immediate finality. I believe

that many payments going through RTGS

systems do not need immediate real-time

finality but they do need to be delivered

faster than the bulk payment system can

achieve.

What is required is a spectrum from slow,

boring but potentially free, up to instanta-

neous transfer of final value. We believe

that the banks’ clients will require that

spectrum and are prepared to pay accord-

ingly. The issue becomes how one makes

such a transition and who pays for the cost

‘blip’ required to achieve it.

That said, a recent opinion poll commis-

sioned by LogicaCMG showed that nearly

two thirds of corporate customers would

pay additional fees to banks for improved,

more detailed information about their pay-

ments, while a third could consider switch-

ing banks for such information. Does that

tally with the experience of this round-

table’s participants? ➢



Marilyn Spearing: Information about pay-

ments is a key issue for corporate clients,

and one that HSBC is aware of. Integration

between our systems and theirs is one way

of ensuring that rich detail makes its way

through the ‘processing’ and back to the

remitter or beneficiary for full and automat-

ed reconciliation. I believe this need is also

driving the standards discussion with corpo-

rates. Their goal is better information: more

accessible and more timely. LogicaCMG’s

research doesn’t surprise me.

Hansjörg Nymphius, Deutsche Bank &

EBA: Determining the level of distinction

between large- and low-value payments

needs to be evaluated from the perspective

of each customer segment and the respec-

tive providers who are involved.

The typical retail customer would hardly

know how to tell the difference between

large and low value payments. The retail

customer’s main concern would be the ease

of effecting payments, the price, the reliabil-

ity and predictability of the transfer.

Corporate customers would make a distinc-

tion between AP/AR-related flows and

treasury-related transactions. First, bulk pro-

cessing would be looked at but the individ-

ual amount wouldn’t matter that much.

Other factors would be reliability, predictabil-

ity and price. For treasury activities, other

criteria are involved: speed, finality, cut-off

times and funding. Price sensitivity for such

treasury transaction fees is rather low.

Infrastructure providers have different priori-

ties again. Entities such as EBA look at

straight-through processing (STP), time to

process, priority queues, cash funding and

cost per transaction. Cash-saving settlement

mechanisms and finality are the corner-

stones of a competitive offering. The amount

of an individual transaction does not neces-

sarily matter as long as there is sufficient

settlement capacity in a given system,

either through reciprocal settlement streams

or participant funding. Offerings typically dif-

fer around urgency of a payment versus

lowest cost of transaction.

The requirements of banks as service

providers are very similar to those of the

infrastructure providers. An important factor

for the customer and the bank is the bank’s

ability to provide sufficient funds to get a

payment out the door in good time. The

urgency of a transaction combined with the

magnitude of the amount drive the service

level and price.

Overall, technology-wise, there is not really

a difference between large and low value,

but issues like urgency and funding really

drive differentiation. Information on and

around a payment transaction becomes a

more valuable proposition for the customer

and therefore will lead to new forms of

service definition. Clear indications of this

outcome are the numerous discussions that

we see around initiatives such as TWIST,

RosettaNet, etc. Discussions are focused less

on numbers of formats and more on what

information can be transported and provided

and how this would be done. On the other

hand, customers will only be prepared to

pay for services or components that they

require and request.

Lázaro Campos, SWIFT: The different sys-

tems themselves, both ACH and RTGS, are

becoming so sophisticated that they can

“ From a bank perspective, the issue is

not the availability of the services, but

the intelligent use of routing out of

their systems based on their needs and

those of their corporate customers.

Lázaro Campos, SWIFT



handle any kind of payment. From a bank

perspective, the issue is not the availability

of the services, but the intelligent use of

routing out of their systems based on their

needs and those of their corporate cus-

tomers. Many of these decisions used to be

hard-coded. Now banks are investing in

intelligence that helps them decide how

best to route payments.

Julie Monaco: There have been several ref-

erences to the relationship between

urgency of a payment and cost. In princi-

ple, I agree that the processing of urgent

payments provides greater value to clients

and should be priced accordingly. However,

the industry cannot justify building this

capability into both high value and low

value payment channels and risk creating

redundant payment infrastructures. If pay-

ments are urgent and require immediate

advice notification to the beneficiary, they

should be delivered over the high value,

immediate finality payment channel. It is

more cost effective to enhance this channel

in order to meet urgent payment require-

ments than to consider a significant invest-

ment that upgrades the low value channel.

How much input should corpo-

rates have directly through

industry bodies such as the

EPC in the future shape of

payments infrastructure?

Marilyn Spearing: I expect banks to be

able to represent corporate requirements.

Banks should be responding to their corpo-

rate customers and if a corporate is so ill-

served that it has to sit on those industry

bodies, that suggests we’ve got the bal-

ance wrong.

Large corporates, very appropriately, are

constantly seeking greater and greater effi-

ciency at the lowest cost. They are fre-

quently looking to participate in the forums

to promote that. But they do not incur the

costs of maintaining or collateralising any

of the systems. The banks are building, col-

lateralising, ensuring settlement and main-

taining the systems that flow all of the

data. Why should corporates participate and

not the consumer associations or any other

potential user? To have only one segment

of users on the committee could open up

an imbalance.

Terry Quigley: One could argue that the

corporate lobby for representation on

Standards Committees is more a manifesta-

tion of their frustration with the services

offered than an inherent desire to set stan-

dards. If that is true, then the banks should

be responding with real service initiatives

rather than a piece of technology.

Lázaro Campos: It was never intended that

corporates would have a direct voice on the

EPC. Perhaps, as Terry says, such calls reflect

impatience at the pace of change rather than

any underlying sense of entitlement.

Gerard Hartsink: I find that corporates are

increasingly taking the initiative to stan-

dardise. Examples are TWIST, RosettaNet

and the action plan of the EACT (European

Association of Corporate Treasurers). The

involvement of merchants in the develop-

ments of POS terminals is also relevant.

The EPC has a dialogue with the EACT and

is prepared to have further co-operation in

the next steps for Euro(pean) payment

instruments and the standards involved.

Banks should maybe be adding some addi-

tional datafields in the payment chain ➢

“ The EPC has a dialogue

with the EACT and is pre-

pared to have further co-

operation in the next

steps for Euro(pean) pay-

ment instruments and

the standards involved.

Gerard Hartsink, ABN AMRO & EPC



to be used for their corporate customers.

This will lead to more value-added services

and increased efficiency (reconciliation) in

the whole payment chain. It is essential that

there is full commitment on the potential

content of these additional datafields.

Julie Monaco: There are two key points

here. First, banks need to understand the

emerging payment requirements of their

corporate clients; and secondly, corporations

have their own forums that Gerard referred

to – such as TWIST and RosettaNet – to

develop their requirements and present

them to the financial services industry. When

these two factors are working together,

there would be no need for direct corporate

involvement in organisations like the EPC.

The banking industry would understand

what corporations are looking for and they

would have a sense that the requirements

have some level of support within the cor-

porate community.

There are some banks taking a leadership

role in working with corporations to develop

new payment standards and shape the

evolving payments infrastructure. There has

been some success – not broad-based – but

something we can build on.

Hansjörg Nymphius: We really have to look

at the whole process chain, end-to-end,

from customer to customer. In this respect it

is important to understand the requirements

and needs of the corporate market to build

and shape the future. Their input is needed

to get it right. In addition, co-operation

between the EPC, EBA and corporate indus-

try bodies should be fostered.

Marilyn Spearing: I agree. That’s the best

route.

Julie Monaco: Terry’s point – that corpora-

tions are interested in industry ➢

“ The ACH channel, which was

originally designed for low

value, recurring next day trans-

actions, is being used more

often for high value, one-time

transactions.

Julie Monaco, JPMorgan Chase



standards bodies because of frustration

with payment service offerings – got my

attention. If banks have done their job cor-

rectly, and I believe that we have, the serv-

ices that the industry has developed over

time are based on client requirements and

have generally met the needs of the corpo-

rate community. Yes – the industry is evolv-

ing and there is new technology to consid-

er, but new development must be based

on a foundation of partnership. Banks are

willing to invest in the new technology and

develop services that meet new require-

ments. We need our corporate partners to

help with the business case by expressing

a firm interest and a commitment to use

the new services within a reasonable time-

frame. Banks will not commit to major

investments with the rationale of “build it,

and they will come”.

Is a cross-industry global pay-

ments standard a pipe-dream?

Julie Monaco: Common standards are the

cornerstone to building efficient global pay-

ment infrastructures that provide value-

added services to clients. Cross-industry

standards are used today – EDIFACT and

SWIFT XML are both examples of opera-

tional use, and have small, but enthusiastic

followings. While adoption has not made

these large-scale events, recent develop-

ments, especially with the use of IP and

related technologies, indicate that there

will be a larger community that uses these

global standards in the future.

Hansjörg Nymphius: From a technical per-

spective, a cross-industry global payment

standard would seem to be possible.

However, the challenge is that it will take

quite a long time for this standard to be

realised because we still have to cope with

national standards. These standards have

evolved over a long time, are well-perfect-

ed and therefore difficult to replace.

Gerard Hartsink: I would go further.

Corporate treasurers have repeatedly stated

that payment instruments and payment

messages should be standardised. But the

market reality is that there is no business

case for a structural migration from existing

payment instruments to new payment

instruments, either for corporates or for

banks. For the Eurozone (EU12 countries),

though, such a standardisation is expected,

because the public authorities expect the

banks to realise the SEPA.

Hansjörg Nymphius: The business case

would only hold true for those who operate

as global or at least multi-regional

providers. A global payments standard can

only show its strength if it is adopted

beyond the banking industry and really

flows end-to-end, not only from corporate

to bank to corporate but even including the

retail end. It would be great to have a

cross-industry global payments standard,

but just take Europe as an example. It can

be painful to move away from old national

environments to a pan-European scenario.

Marilyn Spearing: The business case is obvi-

ously important, but, conceptually at least,

I’ve never heard anyone opposed to getting

a better cross-industry global standard. And

we need to create the standards to give

people the time to adapt their systems. It’s

the implementation that takes so long. It

takes a while to get a change through, even

within a body such as SWIFT where everyone

is a member and is agreeing to abide by the

rules. It takes time to get systems readapted.

Lázaro Campos: It sounds appealing, but in

many cases, the issue is not the standard,

it is the market practice. The creation of

such a standard is possible but, as Marilyn

“ Co-operation between the EPC, EBA

and corporate industry bodies should

be fostered.

Hansjörg Nymphius, Deutsche Bank & EBA



says, it would certainly take time to imple-

ment. Is there a market need at this point?

Different groups have been looking at this

question, but ultimately the approach of

most institutions will be pragmatic. You

invest when you can follow through. Purity

does not pay the rent.

Terry Quigley: In principle, global, fully

extensible common standards for payments

are highly desirable and are something to

which all the community should aspire.

However in the short to medium term the

issue is interoperability rather than a com-

mon standard per se.

Creating a common standard to replace

existing standards (as opposed to standard-

ising something that is currently not auto-

mated) has the paradoxical effect of

increasing the cost to participants because

they have to re-engineer their existing

technology to cope. In our experience the

business benefits must be compelling to

convince corporates to change their usual

business behaviour or practices.

We feel banks should improve their services

incrementally, without making significant

demands on the systemic and procedural

operations of their clients. In the past,

banks have been too quick to adopt major

technology initiatives that required too

much effort on the part of the corporate to

implement. In addition, I think, banks have

obsessed for too long over standards-based

solutions, when what the corporate really

requires is certainty of payments. Banks are

obsessed about standards, but to the corpo-

rates this is a bit of a red herring.

A global cross-industry standard may not be

a pipe dream, but such a standard will take

a very long time to implement because of

the sheer number of systems installed in

banks and corporates. In the meantime, we

should all be looking at interoperability and

developing translation tools.

Julie Monaco: The industry needs a process

and a plan to build upon the few successes

that we have had with global payment

standards. Should SWIFT lead the initiative?

Should they include other industry organisa-

tions? Or, are there other organisations that

should take the lead? We need to answer

these questions and establish a global oper-

ating framework if we want to move for-

ward with what everyone agrees is a

worthwhile, yet challenging, goal.

How much central bank involve-

ment do you regard as neces-

sary or prudent for the efficient

functioning of ACHs?

Gerard Hartsink: Central banks have three

principal roles for the payment industry.

These are an oversight role, a catalyst or

facilitator role and an operational role for

RTGS, high value net settlement systems,

coins & notes and, sometimes, low value

payment systems.

There is, in general, no debate on the first

two roles nor on the operational role of the

central bank in RTGS systems. Public authori-

ties have to ensure safe and efficient pay-

ment systems. The real debate is whether

central banks should be competitors in pro-

cessing retail payments. In emerging markets,

that may be the best solution. There is, how-

ever, no reason why in G10 countries like the

USA and Germany, central banks should be

involved in retail payments processing.

Marilyn Spearing: I would see the regula-

tor as separate from the central bank. The

central bank should be primarily focused on

efficiency of payment systems for the users

of payments within their jurisdiction. As

long as it is functioning effectively through

those who are charged with running the

ACH – and that’s different in every country,

some privately run, some run by banks,

some run by the central banks – I do not

see the sense of strong central bank

involvement.

They should have an oversight role, but I’m

indifferent as to whether they have an

operational role. What you are looking for

with high volume payments – that are gen-

erally low value – is efficient throughput; it’s

all about unit cost. The more regulator ➢

“ Banks need to understand the emerging payment requirements of their corporate

clients. Julie Monaco, JPMorgan Chase



and central bank involvement you have,

the less likely you are to have high effi-

ciency and low unit cost. I generally

believe that there should be a light touch

from the regulator as long as soundness,

liquidity and efficiency are all in hand.

Terry Quigley: In developing countries, as

Gerard suggests, there is often a need for

the central bank to take a leading role to

ensure that something happens. In these

economies, it is the central bank that tends

to have the expertise, and/or the motiva-

tion and/or the investment funds (or

access to investment funds via the World

Bank etc.) The central bank can also ensure

fair and equal access to all.

In developed countries, only minimal

involvement from the central bank is

required to provide final settlement and for

oversight – if the payment system is sys-

temically important. In these countries, the

central banks, arguably, should merely pro-

vide the liquidity and regulation. They cer-

tainly do not need to operate.

Julie Monaco: If you look at the US model,

on the other hand, you see the central

bank involvement from both a regulatory

and operational perspective. The central

bank provides a common ‘infrastructure’ for

the sharing of proposed standards and the

development of regulatory oversight, all of

which will ultimately influence market

practice. The Federal Reserve’s involvement

is balanced by the industry forum activities

of NACHA and The Clearing House/EPN.

This level of involvement and ‘partnership’

with the private sector in any major market

is reasonable and it contributes to the over-

all effectiveness of the ACH payment infra-

structure.

There are probably a lot of people in the

industry who would like to see a reduced

processing role for central banks in the

retail payments environment. I just do not

see that happening in the immediate

future. Yes – there are and will continue to

be competitive issues with central banks

that have processing roles. We will need to

deal with those issues. The industry should

focus on the partnership relationship we

enjoy with our central banks and work with

them on improving safety, soundness and

efficiency in the ACH market.

Hansjörg Nymphius: Central bank involve-

ment is needed for systemic oversight but

it is not necessary for driving competition.

The argument in favour of central bank par-

ticipation is that in emerging markets the

central bank probably is best suited to

organise, fund, set-up and operate an ACH-

infrastructure. Even so, while the reasons

given for this are valid, this effort would

need to proceed with caution. An initial

effect may be that a national/regional pri-

vately organised structure will never have

the chance to evolve and therefore the

central bank may always maintain a

monopoly. In addition, as discussed, this

also may not be the most cost-effective

solution.

The best way for central bank involvement

to work is for central banks to foster and

encourage the establishment of ACHs by

the market participants, and may even help

to fund this effort with start-up money.

Central banks should, however, avoid being

in the position of running the operations

while simultaneously holding the overseer

role.

Julie’s points about the US market holds

true owing to the sheer magnitude of that

domestic market, but they would not apply

in emerging markets or in the situation of

the 10 acceding countries in Europe.

Are regional differences in harmonisation

and regulation creating imbalances in the

global landscape?

Marilyn Spearing: Yes, definitely. There’s

no question that regulation is creating

imbalances. The recent EU regulation on

cross-border payments pricing automatically

created imbalances for in-euro banks against

the rest of the market. We have already

seen how this particular regulation has

changed bank behaviour vis-à-vis customer

and interbank pricing. The payments land-

scape in Europe has changed irrevocably due

to the cost pressures. We have many

providers of payments services throughout

Europe. Now the revenue line is very

severely impacted, that will force a

response on the cost line, which will

change how Europe interacts in payments

and that will start to force a consolidation. I

see that as an imbalance. You have an

enforced change.

Other examples might be the implications

of money laundering legislation in different

jurisdictions and the continued need to

meet central bank reporting requirements.

Under FATF, US banks are much more tight-

ly regulated. Then there is the question of

the application of Basel II in the US.

Hansjörg Nymphius: As mentioned, differ-

ences in implementation of regulations can

lead to certain imbalances. Nevertheless,

the imbalances are not so much, or at least

not only, between in-euro banks and non-

in banks but even more so within the com-

mon market. The point is that the price ➢



pressure that this directive has instilled is

not an equal one, as the margin in this busi-

ness differs depending on the various

‘domestic’ markets. As a matter of fact, we

find that those countries that had been the

most efficient prior to the cross-border pricing

regulation are the most penalised by it.

Countries with high domestic payment fees

see less cost pressure and therefore banks

operating there are in a better position.

Regulators need to be more encouraging of

the common goal of a single EUR-market.

Julie Monaco: Historically, differences in reg-

ulation, law and market practice have result-

ed in differences in payment systems and

their use. As the industry creates a more

seamless and transparent global payment

infrastructure, it becomes easier for clients

to select less stringent payment systems to

move money. The implications of this sce-

nario are significant and can lead to unin-

tended consequences. Global harmonisation

and regulation are challenging tasks – but

the industry has little choice but to pursue

them.

Gerard Hartsink: Regional differences in reg-

ulation, notably in regard to money launder-

ing and security, for example, create extra

costs for the banking industry. Technology

providers have to supply different solutions

for ostensibly the same problem. We have to

remember, however, that 99% of all pay-

ments are domestic or regional payments.

Terry Quigley: As both Gerard and Marilyn

point out, there is a regulatory burden that

creates imbalances, though most of that

imbalance is a cost imbalance on the banks

that may or may not be passed on to the

end-customer.

As regards harmonisation, payments sys-

tems can create imbalances through differ-

ent operational rules across geographies.

The danger of this is that we introduce

another form of inter-system systemic risk.

Julie Monaco: It appears unanimous –

regional differences in harmonisation and

regulation are causing imbalances. I agree

with Gerard – as most payments are domes-

tic – the imbalance primarily impacts the

large, global payment providers. My concern

is that, as an industry, we are not doing

enough about the issue. An interesting first

step would be to identify the differences in

regulation among the major payment mar-

kets and assess the real and/or potential ➢

“ A recent opinion poll

commissioned by LogicaCMG

showed that nearly two thirds

of corporate customers

would pay additional

fees to banks for improved,

more detailed information

about their payments.

Terry Quigley, LogicaCMG



impact to the way the payments infrastruc-

ture is being used.

Lázaro Campos: I’d argue that recent regula-

tions are also creating imbalances between

large and smaller players – the larger institu-

tions are better equipped to cope.

Are cross-system swaps and liq-

uidity bridges needed to deal

with imbalances when they

arise?

Julie Monaco: Just to put this into context,

the global payments infrastructure works

today. Every day the industry settles tril-

lions of dollars, euros, yen etc, without any

‘show-stopping’ imbalance issues. However,

the industry should not be complacent.

9/11 taught us about the need to maintain

liquidity bridges in worst-case scenarios. A

case can also be made about the increas-

ing liquidity requirements in the global

payment markets and the need to develop

swaps or liquidity bridges for a normal

operating environment.

The Federal Reserve Bank (of New York)

Payment Risk Committee published a Global

Liquidity Report in 2003 that addresses both

the challenges and opportunities in develop-

ing new liquidity services, which will add to

the solutions several central banks have

already established. That report has been

received with interest by the industry and

we are hopeful that additional initiatives

based on the recommendations in the

report will be developed this year and next.

Gerard Hartsink: The Payments Risk

Committee made clear in their Global

Payment Liquidity report that it is necessary

to create payment capacity in currency X

with collateral or payment capacity of the

central bank of currency Y. The central

banks (in the Committee on Payments and

Settlement Systems of the BIS) are review-

ing the consequences for creating these

options. It was made clear that it is not

only in the interest of large multi-region

banks and not only in case of a crisis.

Terry Quigley: These are very specific solu-

tions to very specific problems. Examples

might be liquidity swaps between Euro1

and Target and in-out swaps in CLS. They

are pragmatic solutions to very real prob-

lems and are fine provided they do not add

to systemic risks.

Marilyn Spearing: I think the market

evolves as it has to. The banks are moving

towards a market solution for Europe

through STEP2 for example. On cross-indus-

try swaps, there will be a similarly prag-

matic response. If you look at CLS and the

need to move cross-system, the in-out

swaps are an example of that.

Will the need for cross-system swaps and

liquidity bridges arise more generally?

Possibly, but, right now, the liquidity

requirements are being met within each

system. I don’t think there’s enough

demand for that yet.

Hansjörg Nymphius: Agreed – there has

indeed been a lot of discussion around

these aspects but so far the demands on

liquidity have been fulfilled in the individual

systems. Is there enough business need to

venture into this area today? Future market

developments will show whether enough

demand exists to establish these tools.

“ The revenue line is very severely impacted,

that will force a response on the cost line,

which will change how Europe interacts in

payments and that will start to force a

consolidation.

Marilyn H. Spearing, HSBC

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